Applied Digital (NASDAQ:APLD) Q4 2026 Earnings Call

0:00 Good afternoon and welcome to Applied Digital's Fiscal Fourth Quarter twenty twenty six Conference Call. My name is Pascal Behrman and I will be your operator today. Before this call, Applied Digital issued its financial results for the fiscal fourth quarter ended 05/31/2026 in a press release, a copy of which has been furnished in a report on Form eight ks filed with the Securities and Exchange Commission or SEC and will be available in the Investor Relations section of the company's website. Joining us on today's call are Applied Digital's Chairman and CEO, Wes Cummins and CFO, Saidal Momand. Following their remarks, we will open the call for questions. Before we begin, Matt Glover from Gateway Group will make a brief introductory statement.

0:48 Mr. Glover, you may begin. Thank you, operator. Hello everyone and welcome to Applied Digital's fiscal fourth quarter twenty twenty six conference call. Before management begins formal remarks, we'd like to remind everyone that some statements we are making today may be considered forward looking statements under the securities laws and involve a number of risks and uncertainties. As a result, we caution you that there are a number of factors, many of which are beyond our control, could cause actual results and events to differ materially from those described in the forward looking statements.

1:19 For more detailed risks, uncertainties and assumptions relating to our forward looking statements, please see the disclosures in our earnings release and public filings made with the SEC. We disclaim any obligation or undertaking to update forward looking statements to reflect circumstances or events that occur after the date the forward looking statements are made except as required by law. We also discuss non GAAP financial metrics and encourage you to read our disclosures and reconciliation tables to the applicable GAAP measures in our earnings release carefully as you consider these metrics. We refer you to our filings with the SEC for detailed disclosures and descriptions of our business as well as uncertainties and other variable circumstances, including, but not limited to, risks and uncertainties identified the caption Risk Factors in our annual report on Form 10 ks and our quarterly reports on Form 10 Q.

2:05 You may access Applied Digital's SEC filings for free by visiting the SEC website at www.sec.gov. I'd like to also remind everyone that this call is being recorded and made available for replay via a link in the IR section of Applied Digital's website. Now I'd like to turn the call over to Applied Digital's Chairman and CEO, Wes Cummins. Wes? Thanks, Matt, and good afternoon, everyone. Thank you for joining our fiscal fourth quarter twenty twenty six earnings conference call. This was a defining quarter for Applied Digital, capping a transformational year for the company. We signed leases for five campuses, including three in just the past four months. We created $36,000,000,000 of total contracted long term lease value and approximately $20,000,000,000 of that in the last quarter. This represents 125% increase in contracted lease value under penned by 1.41 gigawatts of contracted critical IT load for all campuses.

3:00 As previously mentioned, we recently signed three new campuses, Delta Forge one, Polaris Forge three, and Delta Forge two with the same high investment grade hyperscaler. These campuses span three states across two distinct regions of the country. Delta Forge one and Polaris Forge three are each approximately 7,500,000,000 in base term contracted lease revenue and Delta Forge two adds approximately $5,200,000,000 together representing approximately $20,000,000,000 in long term contracted revenue from a single world class customer. Over the course of the year, we delivered 100 megawatts of Polaris Forge one on time and on budget. We also achieved strong financial results, which you will hear about in a few moments. Just as importantly, we deepened our partnerships with local communities, building trust, making lasting investments and helping improve residents' quality of life.

3:51 We are currently constructing five multibillion dollar AI factory campuses for three separate hyperscalers at a scale we believe speaks both to the quality of our platform and trust to these customers place in our ability to execute. We achieved this kind of scale by leveraging our proprietary data center design and world class supply chain to efficiently replicate our builds across a diverse set of geographies and climate conditions. At the center of our approach is what we call our franchise model. When we begin development at a new campus, we establish the same core group of approximately 15 to 20 leadership positions, each reporting directly to headquarters. This repeatable operating structure combined with the strength of our supply chain and our status as an approved supplier with every major hyperscaler positions us to deliver a platform that is both differentiated and scalable.

4:42 We believe this model is one of the key reasons we have emerged as a clear leader in the industry. Together, we believe these capabilities provide a strong foundation for creating significant long term value to our customers, shareholders and communities we serve. I'm even more excited about our pipeline beyond the 1.41 gigawatts currently under construction, particularly as rental rates have moved higher over the past six months. We are actively marketing an additional 1.7 gigawatts across multiple states and expect this new capacity to command higher pricing. We're seeing demand not only for entirely new campuses, but also for additional capacity at our existing locations. We are currently in advanced negotiations with two existing investment grade customers to finalize leases associated with their respective expansion options for approximately 100 megawatts and 150 megawatts at these locations.

5:35 We expect these expansion leases to be executed on substantially the same terms as the customers' current lease agreements, but at materially higher lease rates than existing leases and possibly longer duration. If executed, these leases would bring our total capacity to 1.66 megawatts and over $6,000,000,000 of additional contracted revenue based on existing rates and duration. We expect the ultimate amount to be even greater reflecting the anticipated higher rates and potentially longer duration. Importantly, we believe the opportunity extends beyond simply adding contracted megawatts. As we continue to expand our platform, we've seen opportunity to increase operating leverage through premium pricing as well as further diversifying our customer base across both our existing and future campuses.

6:23 As it relates to our power pipeline, I'm especially excited about our strategy and our work with Base Electron, an independent power producer collaborating with Babcock and Wilcox, the regional utilities and regional utilities to develop roughly 1.2 gigawatts of front of the meter natural gas generation in the Dakotas. We're seeking to position our shareholders to benefit from Basalotron's success as we currently own approximately 10% of the company. However, we believe that even more compelling opportunity is the power itself, which is the single most valuable and constrained resource in our industry. This generation is expected to unlock expansion at existing campuses, enable the development of new ones, and deepen our access to one of the country's most advantaged energy regions. North Dakota's Bakken Shale is among the most abundant low cost energy sources in The United States.

7:12 Combined with the region's naturally cool climate and business friendly environment, we believe the region is exceptionally well suited for data center development. Our core belief is that this combination creates a significant competitive advantage and a barrier to entry that is very difficult to replicate. We believe that if we continue to build the power that hyperscalers will continue to come to our regions. Turning to execution. Last call, we delivered our first 100 megawatts at Polaris Forge One on time and just recently we delivered 75 additional megawatts at the same campus again on schedule. On time delivery is a meaningful differentiator in the industry and strongly believe our track record sets us apart from our competitors. Industry data shows roughly 90% of industry wide projects costing more than $1,000,000,000 are delivered late or over budget.

7:59 We are proud to be among the remaining 10% category and are committed to maintaining performance. Today, all of our construction projects are on time and on budget. Turning to our data center hosting business. This segment provides energized space for Bitcoin mining across our two sites in North Dakota. It continues to perform well and remains the highest return on asset business in our portfolio. Importantly, we are paid based on the data center capacity provided to our customers, so as long as they are mining, we are paid regardless of where the price of Bitcoin trades, which makes this a steady high margin source of cash flow. Turning to Chronoscale. During the quarter, we completed the separation of our cloud business, which began trading on NASDAQ under the ticker CHRN in early May.

8:45 Applied Digital currently holds 96% ownership, so our shareholders continue to participate in the upside of that business as it seeks to scale independently as a dedicated accelerated compute platform. ChronoScale has already made meaningful progress building out its leadership team, most notably the point of Raj as chief technology officer. Raj joins after more than thirteen years at Tesla, where he served as vice president reporting directly to Elon Musk and led a broad portfolio spanning AI infrastructure and one of the largest GPU clusters in the world. BurnScale also named Florence Lam who brings more than twenty years of scaling global cloud and AI platforms at companies including Super Micro as Chief Product Officer. We believe attracting talent of this caliber underscores the scale of the opportunity in front of Cronoscale as an independent company.

9:33 During the quarter, Cronoscale extended a customer contract at higher pricing for its deployed fleet of GPUs. The company also began demonstrating its secure enterprise environment to select partners. The company's platform allows enterprises to deploy AI in a secure controlled environment regardless of whether the data resides on premise or at one of several large cloud providers. The platform supports a multitude of AI models allowing partners to choose which is best for their enterprise. In addition to the enterprise cloud, ChronoScale is also pursuing multiple large reserve contract opportunities that if secured on favorable terms will allow the company to deploy hundreds of megawatts of compute on a take or pay long term contract. With that, I'll turn the call over to our CFO, Saddal Momand, for a detailed review of the financials. Saddal?

10:23 Thank you, Wes. Before I turn to the quarter, I want to spend a moment on financing because our team did a tremendous amount of work over the past several months to secure lower cost of capital. During and shortly after the quarter, we closed our $2,150,000,000 of 6.5% senior secured notes to fund our Polaris Forge II campus. We closed a $300,000,000 senior secured bridge facility led by Goldman Sachs. We secured a revolving credit facility of up to $550,000,000 and closed our $1,590,000,000.07 percent senior secured notes to fund our fourth building at the Polaris Forge One campus. Continuing to drive down our overall cost of capital remains one of my highest priorities. A key driver of that progress has been our work with CoreWeave at Polaris Forge One.

11:09 By restructuring the leases at that campus through a special purpose vehicle and by establishing a memorandum of understanding around the credit supporting our debt financing, we were able to place our recent $1,500,000,000 notes at 7%, two twenty five basis points inside our forced, placement, which priced at roughly 9.25 percent. Just as encouraging, that placement, the notes on our initial two HPC buildings of Players Forge One, is now trading at a meaningful tighter spread in the secondary market, which we believe positions us well to refinance that debt at a lower cost in the future. With these transactions, we have now secured the financing needs for the full 400 megawatts at Polaris Forge one and the 200 megawatts at Polaris Forge two.

11:55 Looking ahead, we expect the financing for our next three campuses to be relatively straightforward. Under our arrangement from Macquarie, they fund three fourths of the equity. And because these campuses are leased to a high investment grade hyperscaler, we anticipate favorable rates on our future debt placements. Additionally, signing direct investment grade hyperscaler leases allows us to maintain a favorable cost of capital through the entire lease term as opposed to indirect or backstop leases, which face uncertainty after the initial five year tenure. Taken together, this is a financing model we believe is both repeatable and increasingly efficient as our cost of capital continues to improve. Now let's turn to the quarter. I'll cover the fourth quarter numbers in my comments. Please note that unless otherwise specified, these figures reflect only our continuing operations.

12:47 In the fourth quarter, total revenues were $258,700,000 with $208,200,000 of services revenue and $50,600,000 of data center rental and other revenue. Overall, total revenues increased 407% from the comparative prior quarter. For the quarter, our HPC hosting business generated $2.00 $3,000,000 in revenue, consisting of $152,400,000 related to tenant fed out services, dollars 44,100,000 related to base rent, and $6,500,000 related to tenant recoveries. The data center hosting segment, which operates our crypto data centers, had another strong quarter with $37,300,000 in revenue, materially consistent year over year with stable operating conditions.

13:33 We are very pleased with this business, which continues to deliver the highest return on assets in the company, generating $12,500,000 in segment operating profit in just one quarter on $113,800,000 in reported assets. Because we own the majority of Cronoscale, we consolidated its $18,800,000 of revenues for this quarter. As Cronoscale is pursuing a separate strategy from our core business and now operates as a separate publicly traded company, we have excluded this segment from our non GAAP results. Services cost of revenues increased by $138,900,000 to $208,200,000 this quarter. The increase was driven primarily by the $145,600,000 in tenant fit out services performed within our HPC hosting business. Data center rental and other cost of revenues were $25,100,000 for the fourth quarter, primarily driven by approximately $14,100,000 in depreciation and amortization associated with our first HPC data center at Players Forge One, dollars 6,400,000 in expenses, are reimbursable as tenant recoveries and $4,500,000 in personnel and other operating costs supporting our facilities.

14:41 SG and A expense increased $124,300,000 to $165,300,000 this quarter. The increase was primarily driven by $116,800,000 in stock based compensation due to accelerated vesting of certain employee stock awards as well as grant activity associated with the separation of the cloud service business and an increase in headcount as well as $7,300,000 in personnel expenses also related to the increase in headcount. One item worth calling out this quarter. Our stock based compensation included $47,900,000 tied to one time awards connected to the Cronoscale transaction and $65,100,000 tied to performance stock units. Net loss attributable to common shareholders was $111,600,000 or $0.39 per share.

15:30 Adjusted net income was $12,900,000 or $04 per diluted share. Depreciation for the quarter was approximately $18,200,000 Adjusted EBITDA was $42,400,000 up from $1,000,000 in the comparative prior quarter. Net operating income, or NOI, was $39,900,000 representing a 91% margin, and we define it as our HPC base rental revenue less our rental property, operating expenses, property taxes and insurance expenses. From a balance sheet perspective, we believe we are very well positioned. We ended the quarter with $4,200,000,000 in cash, 5,000,000,000 in debt and approximately $1,700,000,000 in equity. As you evaluate these results, keep in mind that our current financials on the HPC data center side primarily reflect only the initial 100 megawatts that are online and contributing during the quarter.

16:25 Looking ahead, as we bring additional capacity online, investors should expect to see a significant step up in our numbers over the coming quarters and years. We are currently building towards a 1.5 gigawatts of HPC AI infrastructure, and we expect this ramp will drive meaningful growth in revenue, EBITDA and NOI as those megawatts come into service. Now I'll turn over the call to Wes for closing remarks. Thank you, Saddal. We're seeing the AI infrastructure build out enter a powerful new phase. Hyperscalers are no longer just investing in AI infrastructure, they're accelerating their commitments in an unprecedented scale. U. S. Technology companies have now committed to approximately $850,000,000,000 of data center lease obligations over the next several years, an increase of roughly $570,000,000,000 year over year, more than triple prior levels.

17:17 These are not forecasts, these are long term contractual commitments backed by many of the world's largest technology companies with the largest and strongest balance sheets and credit ratings. AI infrastructure spending at the major hyperscalers is projected to reach approximately 3.2% of US GDP in 2027, surpassing projected US national defense spending for the first time. Taken together, these long term commitments reinforce our conviction that we remain in the early stages of what we believe could be one of the largest infrastructure investment cycles in the modern economic history, and we believe Applied Digital is well positioned to capitalize on that opportunity. As I wrap up, I would like to leave you with a few final thoughts. Building AI infrastructure at scale is incredibly complex. Balancing aggressive construction schedules, customer expectations, power infrastructure and community partnerships is no small task.

18:07 Through it all, our guiding principles have remained remarkably simple, do it the right way. For our customers, that means delivering high quality GPU ready data center capacity on time. That commitment is reflected in both the customer relationships we're building and the industry recognition we've received. For our communities, it means being a trusted partner who creates lasting economic value. From the beginning, we believed in building with our communities, not simply in them. We engaged early, listened often, and strive to ensure every project leaves a lasting positive impact. The jobs, tax revenue and long term investment we bring help strengthen local infrastructure, support schools, first responders and create opportunities that can be truly transformational for these communities.

18:55 Our operations are delivering measurable benefits today. At Polaris Forge One, our use of excess regional grid capacity has already returned more than $45,000,000 in electricity credits to local ratepayers. If you'd like to see our approach firsthand, I encourage you to watch our Behind the Build docuseries where we share the town hall meetings and community conversations in an important part of every project we undertake. Finally, a year ago, we set a goal for $1,000,000,000 of net operating income within five years. We now expect to achieve that run rate goal a year from now or three years ahead of schedule. Our platform is now supported by approximately $36,000,000,000 of long term contracted lease revenue. More importantly, we believe the structure of our contracts, the majority being directly with investment grade customers establish a durable earnings and cash flow foundation from which we can continue to expand as our customer demand continues to grow.

19:51 We cannot overstate the competitive advantage our established footprint provides. Our current campuses have the ability to expand, in some cases expand dramatically. We believe expansion on current campuses alone provides us visibility expand to over five gigawatts of critical IT load through 2032. Utilizing existing campus infrastructure will not only shorten economies, will not only shorten development timelines, but will improve returns via economies of scale and established establishing regions of excellence. Our collaboration with Base Electron is intended to augment the power to support this expansion. We do expect to continue to add new campuses this year and next year, the growth potential and diversification. Since our call this time last year, we've expanded from one campus to five, increased contracted revenue from $7,000,000,000 to $36,000,000,000 and added over a gigawatt of capacity with investment grade customers with over 80% of that leased to a high investment grade customer.

20:51 We have delivered significant capacity on time and on budget. We have also dramatically lowered our cost of capital. I'm extremely proud of our team and their accomplishments. Our opportunity is significant, but our focus remains unchanged. Execute with discipline, deliver for our customers and our communities, and create long term value for our shareholders. With that, operator, we're happy to open the call for questions. Thank you. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q and A roster.

21:43 Your first question is from the line of Mike Grondahl with Northland Securities. Mike, your line is open. Please go ahead. Hey, thanks guys. Some of the questions we've been getting lately really revolve around the three recent leases for eight ten megawatts and the lower yields or yield to development cost kind of in relation to your peers. Can you talk about Applied's strategy in signing those three leases? Sure, Mike. So when we go back to the goal of what we have been seeking to achieve for the past twelve months, it was to put a solid foundation in place for Applied Digital.

22:31 And we've walked through this for many quarters. We signed CoreWeave first, then an investment grade hyperscaler. And after we signed CoreWeave, we made a commitment to get to 70% of our contracted lease revenue through investment grade hyperscalers. And so that's been a big accomplishment for us. We signed two investment grade hyperscalers. We're over 70%. It's like soon to be, I think, we'll be close to 80%, 76% of that on the investment grade. So we made that achievement. And what I would say about the yields, I think from a cost perspective, we're fairly conservative. We want to set expectations that we can at least meet and top beat. So from a margin and cost perspective, I think we're fairly conservative from a pricing perspective. These discussions were going on for a significant amount of time. I do think that prices have increased, as I mentioned in the script.

23:23 And I think you'll see that flow through for us on what we have in front of us. But I do think we're hitting on our lease return rates. I think if you comp the entire industry, now there's a very small portion of the industry that's public company. But if you comp the entire industry and you look companies that were doing leases of this scale with these types of customers directly, we would be right in the band, if not at the middle towards the higher end of that band of contract at lease rates, again, for these types of customers with this kind of duration and this kind of scale. And I think we'll be able to drive our financing costs significantly lower. But I think the important part, Mike, is we have a very solid foundation to get you can do the math and kind of walk through that we have about 2 plus billion of net operating income contracted on an annual basis at this point.

24:18 So we'll be able to grow from there but with very solid customers. And when we look at how those returns flow through, and this is kind of how our team, myself and our team, has thought about this from the beginning. When we entered this business, these businesses, whether they're public or in the private markets when they transact, kind of go for 20 to 25 times that NOI number. And so that's really what the goal was for us is to get into very solid leases and really good SLAs. I've talked about that a significant amount because lease yields over time really depend on your SLAs once you have the building operating. And I think we have those locked in from a contract perspective. So I'm really proud of the achievement there.

25:09 Got it. And then maybe a question for Saddell. Can you talk about your strategy around managing cost of capital really on both the debt and the equity side? Yes. Great question. One, I think as Wes alluded to, the type of hyperscaler that we contract with, going direct with the end, high grade investment grade hyperscaler, particularly at rates that are in the high end of the band where where we see these types of leases, transact and where our peers come to, that acts as a function that you can actually lower your cost to the initial if it's fifteen years or even longer. So I think versus you know? And and I talked to in the transcript, some of these longer duration or shorter duration, backstop leases where the guarantees run off after five years. So that's one portion of mitigating and and creating a consistent return. But then if you think about it, we talked about our flywheel. And our flywheel really has three components. So so the first component, you know, as Macquarie funds three fourths of the equity, the first component comes from from the applied, applied balance sheet. So between our corporate cash flows, our our low cost revolver, which were recently secured, we can fund the the the initial portion at a very attractive cost. Our revolver currently is, you know, silver plus $2.25.

26:26 But the MAM equity, think, is one part where I think people tend to overlook and then how that's an attractive form of capital. So, you know, Macquarie Funds, through their $5,000,000,000 JBUFS, three fourths of the equity that's required. If you look at the 1.8 MOIC in that, for for that transaction, it's roughly a mid teens IRR throughout. Now if you compare that, versus just a common stock issuance, right, which can be highly dilutive if you think the current and past prices are, extremely undervalued or, even a more attractive option versus, you know, large convertible debt offerings, which is one popular form to plug in that the equity. And I think looking at the convert, for instance, despite the convert being portrayed as a cheap cost of debt, there is disadvantages of having it in a large scale. One, negative from a credit ratings perspective, which can negatively impact your cost of capital. And then also can create a overhang on the equity if you ever hit times of turbulence when you need to refinance and it's truly treated as debt.

27:26 So so that's that's one thing. And if you look at the cap call math too, right, the cost of capital on issuing equity when severely undervalued or going for convert can be well accessed or north of 20%. So we think the MAM is a programmatic consistent approach for funding a majority of the equity. And then the third portion of the flywheel, which which we have, is effectively the site specific debt. So the first form is through construction. We tap it predominantly through the, the project bond markets as of today. The project finance markets have also been available, which is through the banks, generally low cost. And then what you'll see, two years for the bond or if it's within a, you know, as RFS occurs for the project finance market, you can roll into more of a permanent financing, be it CMES, ABS, or or or still the one forty four a IG market. And with that, your your construction cost and your cost of financing, decreases, right, as construction risk is taken off the table. So so we approach it from, you know, I think, three different forms and all through managing leverage at a very conservative level. So if you take an 80% LTC

28:28 and what we need to build out for our 1.4 gigs, that's contracted and take our average annualized NOI of 2,000,000,000, you're you're sub seven times levered, which is well below comps in the particularly in the private markets, which operate in excess of 10 turns of leverage. So that's how we handle financing, and we try to do it in a conservative, programmatic, stable manner. Got it. Thanks, guys, and best of luck the rest of '26.

28:59 Your next question comes from the line of Nick Giles with B Riley Securities. Nick, your line is open. You can go ahead.

29:09 Yeah. Thanks, operator. Good afternoon, guys. I wanted to ask about the cadence of CapEx spend to the balance of the calendar year. It seems like quarter over quarter spend took a significant step up as expected, but curious if you have any sort of run rate or kind of where that should go quarter over quarter as we try and model out 'twenty six and 'twenty seven? Thanks. Yep, Nick. So, CapEx, so you should expect it around 600 ish million for the upcoming quarter, and that will take a step up as we enter more advanced stages of construction at the new plat at the new campuses. I would note, though, as you see, what we have done is we've, tapped the financing markets for these sites, earlier on the construction versus the first two Ellendale buildings, which were, well well more advanced versus where where we're at with p F 2, for instance.

30:06 Got it. Thanks, Edel. And maybe just on the restricted cash balance, over 2,000,000,000. Can you just remind us what the split is between debt service reserve, letters of credit, and and then kinda what we should expect on the release of that cash?

30:21 Yeah. Let me, so so vast majority of the restricted cash was the Polaris Forged two, bond. So that was in held in escrow until the ESA, was released, which we released that, I believe, in in June. So that that cash is has been unrestricted. NRK will have a greater detail of the actual other accounts. Got it. Great. Okay. I'll turn it over, but I appreciate the update, guys, and nice work. Thank you. Your next line of questioning is from Rob Brown with Lake Street Capital Markets. Rob, your line is open. Please go ahead.

31:03 Good afternoon. Congratulations on the progress. Just wanted to dive in a little bit on the two customers. You mentioned that you were looking at expanding, I think one hundred and one hundred and fifty megawatts. Could you give us a little color just sort of how that would play out? Would these be the existing sites? And maybe some color on the comments about the rate increases?

31:25 Sure, Rob. So on the expansions, we when we started building Polaris Forge two, we started building two buildings, 300 megawatts. We contracted 200 megawatts. We expect in the near term to contract that additional 100 megawatts with the same tenant at that campus. And then on one of our Delta Porch campuses, were negotiating, and as we mentioned, in advance of negotiation with the tenant there for a third building on one of those campuses.

31:58 And as I mentioned in my prepared remarks, we do expect materially higher pricing on both of those expansions as well as new campuses and new capacity that we signed in the future. It's we've seen other contracts out. It's great to see pricing moving up in the industry. Just gives you a really strong indicator of the demand that's out there.

32:27 Okay, great. And then on Base Electron, how

32:31 do you sort of see that driving incremental kind of customer demand? Is that you have the power available in North Dakota that will allow you to add capacity there, just a sense of what Base Electron sort of does for you? Yes. So we as we mentioned, we've announced that there's 1.2 gigawatts being built in North Dakota. This is all front of the meter on grid capacity. We're working on another project there on different part of the state as well. But these will go with the utilities that we work with already. They'll deliver that capacity

33:07 for our data center campuses, but also for other ratepayers on the regional system. But that's a start for Base Electron. We expect that to expand significantly. And we talked about our campuses when we first started with them. We signed initial capacity. The physical infrastructure, transmission infrastructure is there to significantly expand the campuses. We need to add some additional electrons and it won't just be us or it won't just be, sorry, base electron. It adds additional power generation to the network. We expect a lot of other power generation projects in the region as well.

33:44 But that as that additional generation comes online over the next few years, we'll be able to expand all of those campuses. They all go North Of The Gigawatt. And as I mentioned, one of those campuses are significantly North Of The Gigawatt. And so we're excited about that entire region. We started there. We've great success building up in North Dakota, we look forward to just continuing to build that. And Rob, lastly, as I mentioned in the prepared remarks, see clear line of sight to our existing campuses to over five gigawatts of critical IP load capacity, and a big part of that is the base electron generation additions.

34:26 Okay. Thank you. I'll turn it over. Thanks. Your next question is from the line of Derrick Whitfield with Texas Capital. Derrick, your line is open. Please go ahead.

34:39 Thank you. Good afternoon all and congrats on your commercial progress over the last year. Want to start first with just what you're seeing on the demand side. Maybe with regard to the high investment grade hyperscalers in the next lower tier, Are you guys sensing any change in demand based on inflationary pressures? We haven't seen that. As you see, as we mentioned or as I mentioned in my prepared remarks, we've seen pricing moving higher in the market. I think that's a good indicator of demand versus supply. But we still see extraordinarily robust demand in the market across both of the categories that you mentioned.

35:21 Great. And then just based on your prepared comments, it appears your projects are still tracking in that 11,000,000 to $13,000,000 per megawatt range. With that said, I mean, what are the general conditions that would lead you to the lower end versus higher end of that range? And are you expecting any regional differences based on labor conditions in those areas?

35:45 Labor is a big issue that we have been solving and I expect it to continue to solve in almost every region. One of the things that we do on labor So let me back up and start with kind of the high and low end of the band. The high end of the band, there's some site specific things that typically go into that. So when we start a new campus, you'll typically see our builds at the higher end of that band because we include all

36:15 campus costs in that first building, first two buildings. So that typically includes new substations and transmission on campus, land and the power site itself. So that tends to drive drive it towards the high end. And then as we try to work it down over time as we add additional buildings on those campuses, and you mentioned the kind of the the economies of scale as we go at each individual campus. And then there's other things, you know, depending on, you know, for example, one of our sites in the South will be slightly higher because of additional dirt work and site prep, because of the type of soil that we're dealing with. So there's some very specific things that happen on from a location by location basis, but but the remainder of what we do is is really dialed in at this point from supply chain, from construction process and construction.

37:10 Labor rates have been fairly steady over the past six months. But we do a lot of work in two ways on labor. One, try to stay out of the most crowded markets. So we see it's we're the only ones that are really building right now in North Dakota. We have a few other markets that are not as crowded as, say, like Texas or West Texas or some of the other markets that you have you know, a 100 plus projects happening. So we we try to to stay in less competitive markets from a labor perspective. And then also we do a lot of

37:42 education in those markets. We work with local technical college and vocational schools. We do that right at the beginning. We've been doing that, you know, for a while in the Dakotas. And when we move into other states, one of the first things we do is work with the local vocational technical colleges. We even work with them to set curriculum. We typically make some donations. But we want to train people up there to work construction and operations in our facilities.

38:09 Great update and congrats on your success again. Thank you. Your next question comes from the line of George Sutton with Craig Hallum Capital Group. George, your line is open. Please go ahead. Thank you. Wes, I wondered if you could just talk about the governors to your growth. Obviously, demand does not seem to be one of those governors. But when we think through power and supply chain and the number of teams you could handle at any one time? Where do you see the governor being? Yes. So I think, George, that's a great question. So power is definitely top of the list as far as when power is available and how much is we contracted, I think, 2.1 gigawatts of utility power over the past year.

39:05 And so that's definitely one. And it's when is power available and then timing our building to start to match when power becomes available at the location. So that's one. Supply chain is another. As we've talked about many times in the past, we worked really well on supply chain a few years ago, locking in a lot of capacity for electrical for all of the M and P, the mechanical, electrical and plumbing. But it always does have limits. Think at one point, I'd mentioned we had about 700 megawatts per year. That's critical IP load. And so we have contracted to build over the next couple of years at 1.5. So we're definitely exceeding that a little bit. But those are two definitely of the biggest governors. We have great process from a construction perspective in place. Our first building on Polaris Forge 1 took us about twenty four months from the start of construction to RFS.

40:02 Our second building on that site was under twelve months. We've really dialed in, and we're just getting better. The team is getting better with every iteration that we do and just how we sequence things, how we just make everything much more efficient from a construction process. So I feel really good about that piece. Managing supply chain and power are probably the two biggest constraints at the moment. So I wondered, we're obviously in a market that's gotten very cautious relative to AI, your stocks gotten brought into that. And none of what you're talking about on this call represents some of the concerns out there relative to the NIMBY and the open model concern. I'm just wondering if you can give us a bigger picture AI thesis as you see it today relative to what the market is thinking.

40:55 Sure. Just from the demand side, this is I think this might sound a little strange, but I think I'm a fairly conservative person. And so that's why over the past year, we really focused on high quality customers, durable contracts. That was really our mantra was durable contracts, both from an ability for us to deliver, an ability for our customers to cancel and then also from an SLA perspective because if don't operate the sites well, then in almost every instance that I've and talked to people in the industry, customers will have the right cancel. So that's really been the focus to make sure we get those types of contracts.

41:43 We build the right type of buildings. We try to make it as absolutely as efficient as possible, But we don't want to skip over things just because it could lower costs because, remember, we need to operate these buildings for at least fifteen years on the contract, but we think they're thirty plus year assets. So we build buildings that we could operate, and we think will meet all those SLAs for a really long period of time. And so that was the focus, was making sure that we had that type of a platform. And then as far as we focused on high investment grade hyperscalers, investment grade hyperscalers and those types of companies. So what did we purposely avoid? We avoided signing leases with the very large model companies.

42:31 Those are great companies, but I don't think that I don't know how that plays out over time. We see this volatility we saw with DeepSea in 2025. We see it with Jimmy in 2026 now. And so we see this volatility. And then outside of those models, you see the volatility just with with US based companies. So if we, you know, we're speaking this time last year, you know, OpenAI was absolutely the the best day to introduce, you know, g t c four o in April '25, and they were doing extraordinarily well. And then it rolled to Google and now to Anthropic. And so we just really had a focus on the highest quality companies that have high investment grade ratings.

43:18 But what appears, George, is happening, whether it's open source or closed model, that's a totally different debate. But they seem to all need a significant amount of compute. They And seem to use the same amount on inference or a little bit more on inference. So compute still is the foundational layer. I feel really good about our positioning in that market and demand for compute regardless of which way kind of the world goes from a technology perspective over the next few years. Awesome. Thanks for the thoughts. Appreciate it. Absolutely. Your next question comes from the line of John Todaro with Needham and Company. John, your line is open. Please go ahead.

44:06 Hey, guys. Thanks for taking my question and congrats on the progress here. I guess just going back to the earlier question on the growth governor. Wes, I think you've mentioned in the past you could work on seven campuses simultaneously. You're at five now. I imagine some get completed, you had other ones. Is that number pushed higher even above seven? And is the currently market 1.7 gigawatts, will that be kind of captured within what you could do simultaneously? Yeah. So so great question. So, yes, I've mentioned, you know, seven before. I, you know, I I will say I think we can go higher than that. Let us get there and and see how it's working. Because One thing, John, that we don't want to do is overextend ourselves. We want to make sure that we always are in the right position to execute and deliver.

44:59 That's number one. When I go through the risks, we're initially signing contracts. And then second is delivery. We've got those two dialed in. And then the third is operations. We've been operating the first building for roughly eight months now. That's going extremely well. So we're getting all of those things dialed in really well. I just want to make sure that we continue to execute and deliver on time for our customers because it's such a key thing. So I'd rather if we need to stop at seven we'll stop at seven but we'll see when we get there and how far we think we can go with managing the construction process. And then again, as I mentioned, there's definitely some limits on supply chain. We continue to be able we've been able to continue to keep expanding that limit.

45:52 So I don't I don't know where that is for certain, but but, you know, it definitely does exist out there as far as that supply chain limitation. But I still, you know, I I will see if we get to the seven campuses. You know, we're obviously marketing to that now. But if we feel comfortable with that, and then once we get there, we'll see if we feel comfortable going above it. Understood. Thanks for that. And then, Seidol, I think you had mentioned the NOI margin at 91%. Just wondering if that's kind of more so the target number we should go with for all the contracted capacity or if, like, the mid eighties, which is, I think, where where we're at, at least, is is more, fair? So so I would just so we as Wes mentioned earlier, right, we we try to aim, conservative with our with our margin targets and and then, obviously, deliver to to the high end.

46:46 There there's a mix of it. Right? One, you'll see us as we get a site up and running post the initial RFS date, you should see margins continue to to increase. Just one, we get better operating the site. And then secondly, there's also, you should see some economies of scale as we have more buildings on within a specific, campus. So that's definitely the goal. The timeline of how we get there for every campus, right, could could defer depending on the, defer depending on the region, but that that's where we're we're marching towards, as well. Got it. Understood. Thank you both. Appreciate it. Thanks, Sean. Your next question comes from Darren Aftahi with Lucid Capital Markets. Darren, your line is now open. You may go ahead.

47:33 Hey, guys. Thanks for squeezing me in. Two if I may. So on base electron, can you just give us a general sense for when that capacity might come online? And then West, your comments about your North Dakota properties being able to expand to various levels, how much of that is contingent on base electron versus just utility growth? And then second question, aside from the two fifty megawatts you guys talked about, the marketing of the, I guess, the remaining 15, how would you kind of characterize that between existing customers that have taken down capacity versus maybe some folks have been left to alter negotiations? Thanks. Sure.

48:20 So on base electron, the timing, so that's in '29 and 30 for that initial Class C and then continue to ramp from there. In North Dakota, there's some other projects. There's some transmission projects plus some generation projects that will fill in nicely. So we've got a lot to build for '26, '27 and some '28, and then we'll have additional power we think, coming online at that time to just continue to expand those campuses. But they're both important to meeting that goal as both in the base electron and then additional power projects that are going on in the region and transmission projects. There's a Jet X line that runs between Ellendale and Jamestown that will come online and expand the Ellendale power capacity for us as well.

49:15 Darren, remind me your last question. It was more around the power of your marketing right now, like relative to existing customers versus others. Yeah. Right now, Darren, just given what we have going on, would expect that to be new customers. Fair enough. Thank you. Appreciate it. Absolutely. Your final question comes from the line of Michael Donovan with Compass Point Research. Michael, your line is open. Please go ahead. Thanks for taking my question and congrats on the execution. So your AI factors are designed to support flexibility in the type and density of compute deployed.

50:06 What changes are you seeing in recent customer requirements beyond GPUs, particularly for CPUs, memory and networking? Yes. So just you made a good point about we've made this very flexible architecture that will level GPUs, TPUs, CPUs. When you get down to that level of detail though, it really goes customer by customer. And we don't see that type of granularity all the time in in what we do. So we get specs of, you know, how to do this because we're doing the fit out, how we do fit out. And so we have kind of a general idea of what they're doing, but not enough that I want to give you insights that you should rely on as far as trends of CPUs versus GPUs and storage amounts.

51:03 But we do build very flexible facilities, and we work through that on a design perspective to where you can put almost anything you want to. Even if you were back to a standard cloud format with much lower power density, our facilities would still work for that as well. Appreciate that. Sure. There are no further questions at this time. I will now turn the call back to Wes Cummins for some closing remarks. Thanks everyone for joining our Q4 call and look forward to speaking with you in October. Thanks. This concludes today's call. Thank you for attending. You may now disconnect.